Pipe bombs and volatility, SPX, NDX, futures

There's nothing like watching the market for your just about to expire (neutral) options spread when you get this news:

Pipe bombs were sent to George Soros, CNN, other "liberals"

This whacked my SPX trade for a total loss ... This was one of the low points (Wednesday at 1pm PDT of an extraordinarily volatile week:

I'm still trading futures options, but I've decided to try SPX and NDX 4-day spreads at the .08 delta: SPX Friday to Wednesday and NDX Monday to Friday in hopes of juicing the results between Fabulous NDX monthly trades. Bad timing for the SPX last week, but the NDX came in for full profit after bouncing around like a ping-pong ball on Friday. (It actually never got too close to my short strike at 6725).

And (duhhh ...) I can test this with SPY and QQQ ... I've dropped back to using SPY (a short strangle, at 247 and 275.5 (i.e waay out wide). Tomorrow morning I'm going to put on a 50-point-wing wide NDX iron condor and a QQQ trade also (strangle or condor).

I'm going to try all these for 10 weeks ... I speculate that they should work in the 90% range, but we'll see.

Futures options are not quite as fabulous when doing strangles/condors as with butterflies, but I'm still using them also as part of the mix. But with volatility at such hugely elevated levels lately, it's too tempting to mix in equities. The VIX closed Friday at 24.16!

More next week ...

NDX trade: can it keep your house from sliding into the ravine?

Try talking to your contractor about this one?

Some friends of our family got an estimate of $300,000 to shore up their house from sliding into the ravine behind the house. (It doesn't look nearly this bad, but $300K to fix, still.)

It turns out that our friends have enough funds from another real estate sale to fix their own place, but if you did (or if you do) have something similar, what could you do about it?

The NDX monthly options, for traditional reasons, don't last until the end of day Friday of their expiration day. Instead, they settle based on the symbol NDS, which is the daily settlement value of NDS. It's valued whenever the 100 stocks in the index have their opening trade, usually in the first 30 minutes after opening (i.e. just before 7am Pacific time.)

There was a study published on Tastytrade showing that trading this NDX settlement overnight with a "1 standard deviation iron condor" (example/details below) ... works 91.7% of the time (i.e. 12 for 13). I've since verified that for myself; I traded this one weekly until Nasdaq removed it from all but the monthlies last February ...

In the couple of losses I've seen on this trade, I've never seen it go very far "into the money", especially after I "widened the wings" of my condor trades.

Given all this ..

It struck me that it made sense to risk even more on this trade that I have been doing. So I risked $30,500 on this trade:

• short the 7060 put
• long the 6990 put
• short the 7250 call
• long the 7320 call

I put the trade on when the index was around 7150 ... when next I looked it had dropped to 7080! But it recovered and actually spiked the next morning on settlement to 7247 ... just within the short call, so fully profitable.

I sold 5 of these for a $9.00 credit each (i.e. $900), so that's $4500 (minus maybe $100 in commissions and fees, so let's say $4400. That's a 14.4% return.

Back to your problem with the sliding house ... If you could scrape together $200,000 to put into this trade, you'd (for example) have made 6.5 times the $4400, or $28600. It's reasonable to assume your winning this trade 5 times in a row, ramping up with increased capital. Volatility will vary, so you won't necessarily make as much as $9.00 all the time ...

In 5 months you could expect to make $100,000 extra, for whatever you can do with that (put 1/3 down on the $300,000 loan you need to fix your house?)

And you could lose $80000 or even $100000 if an extreme loss happens at the wrong time ... this is very unlikely (losses when they do happen are likely to be more like $20K to $30K) ...

So: maybe not an everyday strategy, but if you have only a few months to keep your house from crashing, maybe worth considering?

Finally, your virtual $200,000 account ... was up about $14000 last week. I wouldn't have risked more than $100,000 of this account on this trade, without a house teetering on the brink ...

S&P 500 down 4.5%; your virtual $200,000 account + 0.1%

Finishing up the butterflies that were a drag on futures results limited our gains this past week, but the S&P tanked Wednesday and Thursday and we didn't get any of that on us.

A couple of the butterflies we had on continued to hurt results; I am mostly giving up on these and going to short strangles (on futures only) and iron condors with wide strikes.


Futures options pay better than equities, and the diversified bunch of trades I had on after Wednesday's sharp down move wasn't bothered at all:

So: I'll keep on a widely diversified bunch of futures options trades: strangles if I can afford them and otherwise iron condors with wide wings. I'll add an occasional equity trade as well, favoring those that are highly volatile (and therefore which pay better!) I plan to keep around 75% of my futures-enabled accounts in play (not all them are ... the IRAs don't get futures and futures options until later this year on Tastyworks. For those I still limit exposure to 30-40%.)

And one week of every four ...

This is "expiration week" when the Fabulous a.m. settled NDX trade is available Thursday and Friday. I'm going to hit it hard this week, as it should make about 20% on margin (while risking not much more than that, given 75-point wide wings on the iron condor) ... since over time this trade has shown a 91.7% win rate, the only wish I have for it is that i could do it every week, like in the good old days of earlier this year!

More next week!

Different kinds of butterflies; Futures pricing doesn't hold up when market closes

First of all, when you think of a butterfly this is what you might think of:

But this past week some of them turned out more like this:

It turns out that a butterfly spread, even with the legs at the .10 delta, aren't nearly as wide as a strangle or iron condor. And some of the futures started to move this past week and didn't stay where they needed to for the butterflies to pay off.

The winners: Gold (/GC), Wheat (/ZW), British Pound (/6B), S&P Futures (/ES) ... 

The losers: Tesla (TSLA),  Soybeans (/ZS) ... 

Not sure yet (I put some of these on with greater than 21 days to expiration): Japanese Yen (/6J), Chipotle (CMG) and a few others.

Anyway, I sold my first strangle this week in oil (/CL) futures ... if this oil price stays between $70 and $81 for about the next 8 or 9 days I should be able to get the 50% of the credit profit I'm looking for. The lower margin requirement for futures makes this absolutely compelling ...

Your Virtual $200,000 account: Not sure this week

I got excited last week when it looked as though the approximately $20K account was up 6.8% for the week ... but now I'm not sure. Clearly things haven't gone as well this week, but the way futures options prices bounce around after the close of the market makes it impossible to really tell what's happening until the market reopens.

So I think you're down about $8K or $10K this week (i.e 4-5%), but not positive. I'll have a better read on this for next week.

More news then ... I will have a better view of this next week.